The prospect of increased US spending and rising interest rates has pushed the dollar index above 100 for the first time since December. Fawad Razaqzada, market analyst at Forex.com, said:

The dollar index does appear to be a little bit overbought around these levels, though technically the trend looks strong as it resides inside a bullish channel and above the main moving averages. So, a short-term pullback would not come as a surprise to me, before we potentially see higher levels. That being said, the 100 level has now been tested several times since March 2015. The more a level is tested, the more likely it will break in the direction of the test...It should be noted that if the dollar were to rise further then this will be bad news for US stock. Up until now, they have been rising and falling in unison. This relationship cannot continue indefinitely as the appreciating dollar is supposed to weigh on company earnings.

Dollar Index breaches 100 Photograph: eSignal and Forex.com

On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.

European bond yields are unlikely to rise as fast as those in the US following Donald Trump’s shock presidential election victory, says Capital Economics Simon MacAdam:

In the wake of Donald Trump’s victory in the US presidential election, we are nudging up our forecasts for government bond yields in Europe. But we still don’t expect that they will rise as fast as in the US.

Treasury yields have risen sharply in the US since the election there on 8th November. This reflects investors’ expectations of a major fiscal stimulus under President Trump, which would both increase the supply of bonds and mainly boost inflation at this stage of the US business cycle. (See our Global Markets Update, “New – even more bearish – forecasts for Treasuries”, published on Friday.) Although government bond yields have also risen in Europe, the increases have been significantly smaller than in the US and we expect European government bonds to continue doing better than Treasuries in the months ahead.

For a start, there is a far lower chance of a major fiscal loosening in Europe. Granted, we expect UK Chancellor Phillip Hammond to scale back the pace of fiscal tightening over the coming years in his Autumn Statement later this month. But this is likely to fall short of an outright fiscal stimulus. And there is even less scope for a fiscal expansion in the euro-zone.

Second, a given amount of fiscal loosening would generate less inflationary pressure in Europe compared to the US. This is because there is a greater degree of spare capacity in the economies of Europe, particularly in the euro-zone.

Third, following the UK’s Brexit vote, Trump’s victory has stoked fears of more populist revolts occurring down the line in parts of Europe, including in France, in spring’s presidential election. While Bunds have arguably already benefited to some degree from the uncertainty, any increase in perceived political risk should further boost safe-haven demand, thereby helping to contain yields there.

European markets edge higher

Despite Wall Street coming off its best levels after earlier hitting a new peak, European markets have managed to end the day in positive territory. With bond markets under pressure on the basis that Donald Trump’s presidency could see increased spending and a rise in inflation, equities have been a partial beneficiary.

In the bond market, Italian 10 year yield rose 18 basis points at one time to their highest since September 2015, German 30 year yields were at their highest for six months while US 10 yields were at their highest since December. However bond prices have since regained some ground, meaning yields are off their highest levels. Joshua Mahony, market analyst at IG, said:

The recent resurgence of inflation expectations, coupled with a remarkably buoyant stock market, point towards a likely rate hike in December, and this has helped fuel the drive towards the dollar and away from US treasuries.

US technology stocks are missing out on the market’s current rally, on fears that some of Donald Trump’s policies will prove unfavourable.

Talk of the president-elect slapping tariffs on Chinese goods raised fears of retaliation which could hit the likes of Apple’s expansion plans. Even the prospect of tax breaks allowing such companies to repatriate some of their cash piles has not proved to be much support for the shares.

Nor are the major tech companies likely to benefit from Trump’s proposed programme of infrastructure spending, said Jasper Lawler, market analyst at CMC Markets:

Tech stocks like Facebook and Netflix won’t get any government contracts in a rise in infrastructure spending but Chinese expansion plans are at risk by possible trade tariffs.

More fallout from the strong dollar: oil prices are heading lower again.

It is not just the dollar hitting crude, however. Investors had been hoping that a key Opec meeting at the end of this month would agree measures to curb output and thus support prices. But the closer the meeting gets, the more the doubts grow and put pressure on the crude price.

So Brent is currently down 1.59% at $44.04 a barrel while West Texax Intermediate has slipped 1.68% to £42.68.

Rarely has there been such desire from a sitting government in Athens to conclude a review with auditors representing the bodies that have thrice bailed out Greece since 2010. Highlighting that sentiment, the new government spokesman Dimitris Tzanakopoulos told reporters earlier that differences between the two are “very small.”

The talks, which begin in earnest tomorrow, will focus on an overhaul of labour laws including annulment of collective work agreements and mass firings (a red line many in the ruling left wing Syriza party), privatisations and primary surplus targets for 2019. Next year’s budget will also be discussed. The goal – one dismissed as untenable by most – is for the inspection tour to be wrapped up in a matter of days in the hope that debt relief talks can begin when euro zone finance ministers hold their last meeting of the year on December 5.

If debt-serving costs are brought down, it will reduce the need for the country to achieve a 3.5% primary surplus by 2018 – a target set by lenders but almost unequivocally derided as impossible to meet.

Ahead of president Barack Obama’s arrival in the Greek capital on Tuesday the government has gone out of its way to play up the two-day visit with Tzanakopoulos saying today that it had not only been heartened by his intervention on the matter of Greek debt but calling the tour one of great significance. The trip, which will see the US president flying straight to Berlin after Athens, is expected to be heavy on symbolism as Obama’s last state visit abroad.

To date only the IMF has highlighted the problem of a debt load it has long called “unmanageable.” Greek officials now hope the US leader will bring pressure to bear on the German chancellor when he, too, highlights the issue in talks between the two on Wednesday.

Wall Street hits new peak

US markets are on the rise at the open, with the Dow Jones Industrial Average reaching a new record high - just two trading days after the previous peak.

The Dow is currently up around 45 points or o.24% at 18893, having reached 18,918, ahead of the previous record of 18,873 hit last Thursday, as equities continued to welcome Donald Trump’s election victory, even if bond markets do not.

The S&P 500 opened up 0.21% while the Nasdaq composite added 0.15% initially.

Summary: Bond yields jump as market rout intensifies

Time for a quick catch up.

The bond market has suffered fresh losses today as investors rapidly adjust to the prospect of Donald Trump taking control of the world’s largest economy.

Debt prices have fallen sharply again, adding to last week’s $1trn bloodbath, on the prospect that we’re entering a world of higher inflation, interest rate hikes, political uncertainty and possibly trade disputes too.

“The sentiment surrounding a rate hike has been flip-flopping and that only makes bond buying, especially at around the 1% mark for two-year bills, a more appealing proposition.

“President Trump’s pledge to pile resources into infrastructure to ‘Make America Great Again’ has arguably upped the risk of investing in Treasury yields. The 11-month high of 1% might not be the high water mark for 2016 as Trump’s economic policy is put into action.”

Markets are showing that investors continue to believe the fiscal policy plans by Mr Trump and they want to pile their bets in equities. A risk on trade has become the famous trade amid traders and hence for the past week, since Trump’s victory, we are seeing the precious metal along with other safe haven like the Japanese yen selling off sharply.

Mr Trump has delivered many watered down versions of his controversial views over the weekend. This has restored further confidence that the person in charge of the biggest economy of the world, has started to think more logically.

It is this certainty which investors are applauding.

However... appointing the head of far-right website Breitbart as “chief strategist and senior counselor” doesn’t suggest Trump is backing away from the view that appalled liberal critics.

Trump’s vehemently anti-free trade rhetoric has included the threat to rip up or change NAFTA, the North American Free Trade Association agreement, including the possibility of levying tariffs on Mexico, and this, on top of erecting the wall, or otherwise restricting immigration. He has threatened China with heavy tariffs as a punitive measure for the now redundant charge of manipulating its currency, and opposes the Trans-Pacific Partnership (TPP) trade agreement that was central to President Obama’s pivot to Asia. Even now, China is busy trying to get Asia-Pacific countries to sign up to the Regional Comprehensive Economic Partnership, its own version of America’s TPP.

If Trump proved to be a real isolationist and walked away from open trading agreements, and imposed trade barriers, he might imagine this that would protect American workers and bring jobs home. But empirically we know this just tends to lead to retailation, higher inflation and costs, and job losses. We do have cause to worry that without America to defend and promote a liberal global trade and investment regime, economic damage and impoverishment would spread through the global economy.

Magnus does believe that America would benefit from targeted infrastructure spending plan, but he’s less impressed by Trump’s tax cuts, as they’ll mainly benefit the better off.

And the other BIG worry is that Trump could drives up the US national debt to alarming levels.

Magnus says:

The other major concern about Trumponomics is about a mishandled fiscal expansion and unfunded tax cuts that would entail a substantially wider fiscal deficit and more rapid expansion of public debt. The bipartisan and independent Committee for a Responsible Federal Budget has calculated that what little we know of Trump’s programmes, including repeal of Obamacare, could put about $3-4 trillion on to the outstanding level of public debt, now standing at $14 trilion. By 2026, Federal debt would rise from 80 to over 105 per cent of GDP. increasing the US ratio of debt to GDP from about 77 per cent to at least 105 per cent. Once debt levels exceed 90-100 per cent of GDP, economic growth becomes seriously impaired.

The major risk then is that after an initial economic boost, the US becomes mired again in rising public deficits – remember debt will be rising anyway in the 2020’s because of medicare and social security spending. Since the external deficit would probably deteriorate as well, the likelihood is that economic instability, higher inflation and interest rates, a falling currency, and then an economic downturn might ensue. And if Trump is keen to push for de-regulation, including of banking and finance, that instability might be accentuated.

Writing in the Financial Times, Summers argues that the scheme won’t address the parts of America that most need improving, won’t get key private sector investors involved, and risks pushing borrowing to dangerous levels:

Summers argues:

Unfortunately, the plan presented by his advisers, Peter Navarro and Wilbur Ross, suggests an approach based on tax credits for equity investment and total private sector participation that will not cover the most important projects, not reach many of the most important investors, and involve substantial mis-targeting of public resources.

Many of the highest return infrastructure investments — such as improving roads, repairing 60,000 structurally deficient bridges, upgrading schools or modernising the air traffic control system — do not generate a commercial return and so are excluded from his plan. Nor can the non-taxable pension funds, endowments and sovereign wealth funds that are the most promising sources of capital for infrastructure take advantage of the program.

I am optimistic regarding the efficacy of fiscal expansion. But any responsible economist has to recognise that, past a point, it can lead to some combination of excessive foreign borrowing, inflation and even financial crisis.

JP Morgan: Trump's stimulus plan would be dangerous

In a new note to clients, Kelly argues that the US economy is not under-performing at present, and wouldn’t be helped by a large debt-fuelled stimulus.

Kelly is also concerned that Trump’s proposed tax cut plans would send the national debt clock up to 100% of national output.

First, the federal budget is already dangerously out of balance. Second, the economy is already at full employment so that stimulus applied now is more likely to stoke higher inflation and interest rates than greater real GDP growth.

The federal deficit is already rising, growing from 2.5% of GDP in fiscal 2015 to 3.2% of GDP in fiscal 2016. The Congressional Budget Office estimates that, under current law, the national debt will grow from 77% of GDP in fiscal 2016 to 86% in fiscal 2026.

However, in a September analysis of President-elect Trump’s fiscal plans, the Committee for a Responsible Federal Budget estimated that they would push the debt to 105% of GDP by 2026 if fully implemented. Most of the cost of these plans comes from large proposed tax cuts for both corporations and individuals, although increased defense spending also has a sizable impact.

Kelly also points out that the recent surge in government bond yields shows that the plan would be pricy:

It does not take a brilliant mathematician to see that if long-term Treasury rates return to more normal levels, financing this debt will absorb a much greater share of federal revenues over time. In the 50 years before the financial crisis, the average interest rate paid on federal debt was 5.6% but the average debt-to-GDP ratio was just 37%. A 5.6% average interest rate on a debt equal to 105% of GDP would be ruinous.

The truth is boosting the federal debt to these levels is fiscally reckless.

And if that wasn’t enough, Kelly arguses that the wider US economy doesn’t need a stimulus boost right now:

The U.S. economy is, for all intents and purposes, at full employment. The overall unemployment rate is 4.9% - lower than it has been 77% of the time over the past 50 years while the short-term unemployment rate is lower than it has been 98% of the time over the past 50 years.

Trump supporters might question this rosy view of the US economy -- especially in the Rust Belt where manufacturing jobs have been lost and wage growth pegged down.

But... if Kelly’s right, the fiscal stimulus might not actually regenerate America’s economy at all (creating short-term construction work, but not sparking a manufacturing revival).

He concludes:

In this economy, a shock boost to aggregate demand through tax cuts would likely boost inflation and imports more than domestic production, since the U.S. economy is supply-side constrained. Higher inflation and bigger deficits should lead to higher interest rates – particularly if the Federal Reserve perceives inflation risks as having risen and so raises short-term interest rates.

The American economy is more like a healthy tortoise than a sickly hare. Immigration reform designed to increase skilled immigrants or policies that boosted productivity growth might give the economy the ability to run faster. However, in the absence of this kind of supply-side effort, boosting aggregate demand to make the tortoise run faster would mainly result in over-heating.

If I have to stay on in parliament and do what everyone else has done before me, that is, to scrape by and just float there, that does not suit me.”

Opinion polls suggest the referendum is close.

The reforms are opposed by the right-wing ant-immigrant Northern League, and the radical eurosceptic Movement Five Star -- who both relish the prospect of inflicting defeat on Renzi (once seen as the man to lead Italy out of years of stagnation and political quicksand).